The little-noticed provision in the Scottish Government’s wide-ranging reform of bankruptcy law comes into force next Monday, bringing Scotland into line with the rest of the UK in removing an “exemption for cash” in the seizure of assets.
“The idea of money attachment is completely new to Scots law,” says David Whyte at Brodie’s solicitors.
The new power goes beyond bank arrestments, where a creditor can serve a notice on the bank to freeze a credit balance in an account.
“This provision is very radical because it allows creditors to instruct sheriffs’ officers to turn up at business premises, though it is not permitted on residential property,” Whyte said. “They can turn up and insist on getting money and cheques out of the till. But in the current economic climate you can understand there is a lot pressure on businesses.”
Pubs, small clubs, corner shops and bookmakers are typical targets for the new creditor weapon, he adds. “They have been through the banking crisis and the credit crunch, and suddenly they find creditors (effectively) turning up at the premises on a Friday or Saturday night and saying ‘open the till we are taking every note and coin’.”
Whyte says the commercial recovery departments of law firms “will undoubtedly be using this for creditors”.
The “night raid” will be preceded by the service of a charge – a request for payment within 14 days – after which the creditor can move without restraint.
Whyte says small shop proprietors with cashflow pressures could risk having their family income confiscated, while pubs and clubs would be attractive to creditors. “I know sheriffs’ officers and messengers-at-arms are concerned they may need a police presence if there is a risk they will not be allowed to access the premises.”
Stewart Hunter, of the Society of Sheriffs’ Officers and Messengers-at-Arms, said: “We have got to wait and see how creditors react. Ultimately they are going to make the decision on money attachment, and we are under an obligation to execute the diligence.”
Colin Borland, of the Federation of Small Businesses in Glasgow, said: “There have been some people who have been fly about it and dodged their debt by using the exemption for cash, and sometimes the creditors will be other small businesses as well. We want to see some differential between people exploiting a loophole in the law and the honest businessman who at the moment has tight cashflow. He might be waiting to be paid by one of his big customers and find it difficult to extend credit. If he goes out of business he won’t be able to pay anyone.”
Meanwhile, the Scottish Government’s latest reform of insolvency law, intended to ease pressure on homes being repossessed, has attracted further criticism from Govan Law Centre, which operates a prevention of repossession service for some councils.
Mike Dailly, principal solicitor, who lectures in housing law at Glasgow University and edits the Housing Law Reports in Scotland, has told Holyrood’s local government committee that the Bill as presently drafted is “not fit for purpose”. Dailly says the objectives could be achieved by “simple amendments to the Mortgage Rights (Scotland) Act 2001”.
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